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Husky goes for growth

Sunrise oil-sands project sanctioned; ExxonMobil Canada gas deal

WHEN Asim Ghosh became chief executive (CEO) of Husky Energy six months ago he inherited a slow-moving enterprise, burdened with its failure to achieve ambitious production goals. Having spent a decade turning Vodafone Essar into India’s second-largest mobile phone company, Ghosh made it clear he intended to pull Calgary-based Husky from the shadows.

Describing himself as a builder, not a maintenance manager, he wasted no time spending C$450m ($440m) to acquire 65m cubic feet a day (cf/d) of Alberta gas production from Talisman Energy. That opening gambit was overshadowed on 29 November when Ghosh delivered an omnibus announcement of “several cornerstone strategic initiatives” that will “create substantial shareholder value over the near, medium and long term”.

The bundle included corporate sanctioning of the Sunrise oil-sands project, a joint-venture with BP to produce 200,000 barrels a day (b/d) by 2020; a C$0.86bn purchase of oil and gas properties in Western Canada from ExxonMobil, representing a hefty bet on natural gas; the surprising abandonment of plans to spin-off Husky’s Southeast Asian operations; and a 20% boost in capital spending for 2011, to C$4.86bn, to underpin its 3-5% annual production-growth target.

In addition, the company launched a C$1bn equity financing, along with a private placement to its principal shareholders for a pro-rata share of C$1bn – the key element of raising C$3bn in equity and debt over the next two years.

BP will fund the C$2.5bn first phase of Sunrise, which is due on-stream in 2014 at 60,000 b/d and designed to grow in two more phases. The joint-venture also involves reconfiguring BP’s Toledo, Ohio, refinery to process heavy Albertan crude.

The ExxonMobil deal gives Husky production of 33,000 barrels of oil equivalent a day (80% gas) from estimated proved and probable reserves of 113m boe. The purchase price averages C$38,400/boe, compared with the C$45,000/boe ATB Financial estimates other buyers have paid in recent transactions.

Husky says it carefully examined plans launched by former CEO John Lau to turn its Southeast Asian assets into a separately traded company, before deciding the region should remain a key pillar of its growth strategy. Consequently, regional spending will rise to C$1.18bn in 2011 from C$0.5bn this year to advance its Liwan 3-1 gasfield development, in the South China Sea, to full production in 2013 and accelerate development of two more Chinese gas discoveries, the producing Wenchang oilfield, and gasfields in Indonesia.

Production guidance for 2011 is set at 290,000-315,000 boe/d (195,000-215,000 b/d of heavy oil and gas liquids and 0.56bn-0.61bn cf/d of gas) up from this year’s expected 285,000-295,000 b/d.

 

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